Global development finance system under strain – but we need to be optimistic!

By Richard Hawkes – Chief Executive, British Asian Trust

World leaders recently gathered in Seville for the UN’s 4th Financing for Development Conference. These are rare opportunities (the last one was 10 years ago) for political leaders to come together and consider the challenges of global development and how to finance the required solutions. 

I was proud to have the opportunity of representing the British Asian Trust at this event and to continue making the case that we have been pushing for many years – that we need to innovate, think differently, be brave and bold and find new ways of delivering and funding development. 

The global development ecosystem is under mounting pressure from a convergence of challenges including economic inequality, geopolitical instability and climate change. These issues disproportionately affect people living in poverty and are widening the already significant funding gap required to achieve the Sustainable Development Goals (SDGs), which were designed to address these challenges. To achieve the SDGs, we now face a financing gap of USD four trillion a year. 

There are deep concerns about traditional development financing, particularly after USAID’s suspension and the UK government’s decision to reduce its aid spending to 0.3% of gross national income from 2027, the lowest level since 1999. 

At the British Asian Trust, we believe that Outcomes-Based Finance (OBF) instruments, such as Development Impact Bonds (DIBs), offer one of the solutions that must be considered. OBF is not a silver bullet and cannot by itself solve the overall challenge, but it does offer a proven way to ensure that funding is tied to explicit targets and spent in ways that drive measurable impact. 

Development Impact Bonds led by the British Asian Trust have demonstrated how Outcomes-Based Finance can make development funding more efficient and also achieve impact at scale, transforming entire ecosystems. 

• In 2018 we launched the Quality Education India DIB in India – the world’s largest education impact bond at the time – which delivered an 8% return on investment and achieved 2.5x increase in learning gains for 200,000 children.   

• In 2021 we launched India’s first impact bond for employment, the Skill Impact Bond, aimed at securing jobs for 50,000 young people and seeking to transform the skilling ecosystem to shift the focus away from training certificates to securing jobs. So far, 70% of enrolled women have successfully joined jobs and 56% have continued to work for three months or more, almost six times higher than the national average for skilling programmes in India.   

• In 2023, we launched the LiftEd initiative which includes a DIB to strengthen foundation literacy and numeracy for four million children across India, in alignment with the Government of India’s NIPUN Bharat Mission. 

• Through these initiatives, the British Asian trust has mobilised and deployed more than US$50m and brought together more than 40 partners across government, civil society and the private sector. 

• And in another landmark moment, in his recent budget speech in the Parliament of Pakistan, the Finance Minister announced the government’s collaboration with the British Asian Trust to launch the Pakistan’s first-ever Skills Impact Bond.  

The British Asian Trust  has combined its deep knowledge of local development issues and ecosystems with its expertise in financial innovation and blended different pools of capital, from return-seeking investments to philanthropic grants to domestic Corporate Social Responsibility funds, thus ensuring that all initiatives are well resourced, not too dependent on any one type of funding and can benefit from the strengths that each type of capital brings. 

In response to this context, there have been increasing calls for greater financial commitment to development. However, given current geopolitical and economic constraints, substantial increases in Official Development Assistance (ODA) are unrealistic.  

Financing for sustainable development is at a tipping point and funding is decreasing. It is therefore the responsibility of all of us in the development sector to recognise this and find alternative solutions - to do something bold about this situation; to innovate and come up with different ways of achieving success, and make the funding in the system more efficient, more effective and more accountable. 

The challenges confronting the global development ecosystem today are profound, but so too is the opportunity. As traditional models of financing falter under the weight of rising needs and diminishing resources, there is a growing imperative to embrace innovative, outcomes-focused approaches that prioritise impact over intent and results over rhetoric. 

Outcomes-Based Finance offers more than just an alternative mechanism for resource mobilisation; it represents a shift in mindset. One that brings clarity of purpose, alignment of incentives, agency to local implementers, and deep collaboration across sectors and borders. It empowers communities, holds stakeholders accountable and reorients development around what truly matters: measurable, meaningful change in people’s lives. 

The shifting aid landscape makes one thing clear – philanthropic and private capital have never been more important. Private philanthropy for development currently runs at an average annual rate of USD 10-11 billion and therefore, needs to achieve far greater impact to fill the vacuum left by declining levels of official aid. However, philanthropic and private capital are needed not only to bridge the funding gaps, but also to drive innovation to ensure existing funds are spent most efficiently and effectively and are accountable to outcomes.  

Rather than seeing the Sustainable Development Goals funding gap and government aid reductions as a crisis, we need to see this moment as an opportunity. Perhaps a once in a lifetime opportunity to reform development finance, to attract new funding into the system and to inspire global leaders to believe that change is possible.